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Brady Corporation Reports Fiscal 2022 Second Quarter Results and Updates Fiscal 2022 Guidance

·19 min read
Brady Corporation
Brady Corporation
  • Sales for the quarter increased 19.6 percent. Organic sales increased 13.1 percent.

  • Income before income taxes increased 6.7 percent to $42.0 million in the second quarter of fiscal 2022 compared to $39.4 million in the second quarter of fiscal 2021. Income Before Income Taxes Excluding Amortization* increased 12.4 percent to $45.8 million in the second quarter of fiscal 2022 compared to $40.8 million in the second quarter of fiscal 2021.

  • Diluted EPS in the second quarter of fiscal 2022 increased 10.2 percent to $0.65 compared to $0.59 in the same quarter of the prior year. Diluted EPS Excluding Amortization* increased 14.8 percent to $0.70 in the second quarter of fiscal 2022 compared to $0.61 in the same quarter of the prior year.

  • Earnings per diluted Class A Common Share guidance for the full year ending July 31, 2022 adjusted to a range of $3.00 to $3.15, excluding after-tax amortization expense and $2.78 to $2.93 on a GAAP basis.

MILWAUKEE, Feb. 17, 2022 (GLOBE NEWSWIRE) -- Brady Corporation (NYSE: BRC) (“Brady” or “Company”), a world leader in identification solutions, today reported its financial results for its fiscal 2022 second quarter ended January 31, 2022.

Quarter Ended January 31, 2022 Financial Results:
Sales for the quarter ended January 31, 2022 increased 19.6 percent, which consisted of an organic sales increase of 13.1 percent, an increase of 8.6 percent from acquisitions and a decrease of 2.1 percent from foreign currency translation. Sales for the quarter ended January 31, 2022 were $318.1 million compared to $265.8 million in the same quarter last year. By segment, sales increased 26.1 percent in Identification Solutions and increased 2.0 percent in Workplace Safety, which consisted of an organic sales increase of 16.0 percent in Identification Solutions and an organic sales increase of 5.2 percent in Workplace Safety.

Income before income taxes and losses of unconsolidated affiliate increased 6.7 percent to $42.0 million for the quarter ended January 31, 2022, compared to $39.4 million in the same quarter last year. Income Before Income Taxes Excluding Amortization* for the quarter ended January 31, 2022 was $45.8 million, an increase of 12.4 percent compared to the second quarter of last year.

Net income for the quarter ended January 31, 2022 was $33.8 million compared to $30.9 million in the same quarter last year. Earnings per diluted Class A Nonvoting Common Share were $0.65 for the second quarter of fiscal 2022, compared to $0.59 in the same quarter last year. Net Income Excluding Amortization* for the quarter ended January 31, 2022 was $36.7 million and Diluted EPS Excluding Amortization* for the quarter ended January 31, 2022 was $0.70.

Six-Month Period Ended January 31, 2022 Financial Results:
Sales for the six-month period ended January 31, 2022 increased 17.8 percent, which consisted of an organic sales increase of 10.0 percent, an increase of 8.5 percent from acquisitions and a decrease of 0.7 percent from foreign currency translation. Sales for the six months ended January 31, 2022 were $639.5 million compared to $543.1 million in the same period last year. By segment, sales increased 25.8 percent in Identification Solutions and decreased 3.1 percent in Workplace Safety, which consisted of an organic sales increase of 14.6 percent in Identification Solutions and an organic sales decline of 2.0 percent in Workplace Safety.

Income before income taxes and losses of unconsolidated affiliate increased 6.3 percent to $86.7 million for the six months ended January 31, 2022, compared to $81.6 million in the same period last year. Income Before Income Taxes Excluding Amortization* for the six months ended January 31, 2022 was $94.3 million, an increase of 11.8 percent compared to the same period of last year.

Net income for the six-month period ended January 31, 2022 was $68.9 million compared to $64.3 million in the same period last year. Earnings per diluted Class A Nonvoting Common Share were $1.32 for the six months ended January 31, 2022, compared to $1.23 in the same period last year. Net Income Excluding Amortization* for the six months ended January 31, 2022 was $74.6 million and Diluted EPS Excluding Amortization* for the six months ended January 31, 2022 was $1.43.

Commentary:
“We experienced very strong revenue growth of 19.6 percent this quarter and our investments in sales, marketing, and research and development, combined with our reinvigorated innovative spirit have set the stage for strong future growth. We are transforming Brady into a solution provider that is now growing in excess of GDP and is poised for future sales growth due to the strong foundation and positive momentum resulting from the many investments made over the last five-plus years,” said Brady’s President and Chief Executive Officer, J. Michael Nauman. “Our strong sales growth was driven by our Identification Solutions division which had total sales growth of 26.1 percent this quarter. The three acquisitions completed last year are performing at or above our initial expectations and are helping shift Brady into faster-growing end markets. Our Workplace Safety business returned to organic sales growth this quarter – returning to growth one quarter earlier than originally anticipated. We are experiencing inflation in many areas including wages, freight, utilities, and raw materials, which we expect to continue to pressure our gross profit margins in the short-term. We believe that these gross margin challenges are temporary and once our pricing and efficiency initiatives catch up to cost inflation, our strong sales growth and improved gross profit margins will drive solid bottom-line growth.”

“Brady is financially strong, is experiencing strong revenue growth, and continues to generate strong earnings. We grew sales nearly 20 percent and grew Diluted EPS Excluding Amortization* nearly 15 percent, which represents another very strong quarter,” said Brady’s Chief Financial Officer, Aaron Pearce. “This quarter, we returned $14.5 million to our shareholders in the form of dividends and share buybacks and over the first six months of this year, we returned a total of $45.0 million to our shareholders, which exemplifies our commitment to returning funds to our shareholders. We have a net cash balance of $64.4 million as of January 31, 2022. We believe that Brady’s strong second quarter revenue growth, improving earnings per share, and solid balance sheet position us well for future financial success.”

Fiscal 2022 Guidance:
Brady’s organic revenue growth was 10.0% during the six months ended January 31, 2022, however, inflationary forces compressed Brady’s gross profit margin during this period. Brady expects these cost pressures to continue for at least the short-term before price increases and efficiency actions can fully offset these inflationary forces. As such, we are modifying our Diluted EPS Excluding Amortization* guidance from our original range of $3.12 to $3.32 per share to a range of $3.00 to $3.15 for the full year ending July 31, 2022, which includes a reduction of $0.05 due to the strengthening of the U.S. dollar versus other major currencies. This implies that we expect Diluted EPS Excluding Amortization, to improve by 9% to 15% for the full year ending July 31, 2022 when compared to the adjusted fiscal 2021 diluted earnings per share of $2.75. Also included in our full-year fiscal 2022 guidance are a full-year income tax rate of approximately 20 percent and depreciation and amortization expense ranging from $34 million to $36 million. Capital expenditures, excluding facility purchases are expected to range from $20 million to $25 million during the year ending July 31, 2022. The Company’s fiscal 2022 guidance is based on foreign currency exchange rates as of January 31, 2022 and assumes continued economic growth.

A webcast regarding Brady’s fiscal 2022 second quarter financial results will be available at www.bradycorp.com/investors beginning at 9:30 a.m. central time today.

Brady Corporation is an international manufacturer and marketer of complete solutions that identify and protect people, products and places. Brady’s products help customers increase safety, security, productivity and performance and include high-performance labels, signs, safety devices, printing systems and software. Founded in 1914, the Company has a diverse customer base in electronics, telecommunications, manufacturing, electrical, construction, medical, aerospace and a variety of other industries. Brady is headquartered in Milwaukee, Wisconsin and as of July 31, 2021, employed approximately 5,700 people in its worldwide businesses. Brady’s fiscal 2021 sales were approximately $1.14 billion. Brady stock trades on the New York Stock Exchange under the symbol BRC. More information is available on the Internet at www.bradyid.com.

* Income Before Income Taxes Excluding Amortization, Net Income Excluding Amortization, and Diluted EPS Excluding Amortization are non-GAAP measures. See appendix for more information on these measures, including reconciliations to the most directly comparable GAAP measures.

In this news release, statements that are not reported financial results or other historic information are “forward-looking statements.” These forward-looking statements relate to, among other things, the Company's future financial position, business strategy, targets, projected sales, costs, earnings, capital expenditures, debt levels and cash flows, and plans and objectives of management for future operations.

The use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “should,” “project,” “continue” or “plan” or similar terminology are generally intended to identify forward-looking statements. These forward-looking statements by their nature address matters that are, to different degrees, uncertain and are subject to risks, assumptions, and other factors, some of which are beyond Brady’s control, that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For Brady, uncertainties arise from: adverse impacts of the novel coronavirus (“COVID-19”) pandemic or other pandemics; decreased demand for our products; our ability to compete effectively or to successfully execute our strategy; increased cost of raw materials, labor and freight as well as raw material shortages; increased cost of raw materials, labor and freight as well as raw material shortages; Brady’s ability to properly identify, integrate, and grow acquired companies, and to manage contingent liabilities from divested businesses; difficulties in protecting our websites, networks, and systems against security breaches; risks associated with the loss of key employees; extensive regulations by U.S. and non-U.S. governmental and self-regulatory entities; litigation, including product liability claims; foreign currency fluctuations; potential write-offs of goodwill and other intangible assets; changes in tax legislation and tax rates; differing interests of voting and non-voting shareholders; numerous other matters of national, regional and global scale, including major public health crises and government responses thereto and those of a political, economic, business, competitive, and regulatory nature contained from time to time in Brady’s U.S. Securities and Exchange Commission filings, including, but not limited to, those factors listed in the “Risk Factors” section within Item 1A of Part I of Brady’s Form 10-K for the year ended July 31, 2021 and in any subsequent filings on Form 10-Q.

These uncertainties may cause Brady's actual future results to be materially different than those expressed in its forward-looking statements. Brady does not undertake to update its forward-looking statements except as required by law.


BRADY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited; Dollars in thousands, except per share data)

Three months ended January 31,

Six months ended January 31,

2022

2021

2022

2021

Net sales

$

318,055

$

265,838

$

639,530

$

543,065

Cost of goods sold

168,693

136,316

335,180

278,115

Gross margin

149,362

129,522

304,350

264,950

Operating expenses:

Research and development

13,965

9,876

27,872

20,079

Selling, general and administrative

92,525

82,234

189,271

165,271

Total operating expenses

106,490

92,110

217,143

185,350

Operating income

42,872

37,412

87,207

79,600

Other (expense) income:

Investment and other (expense) income

(578

)

2,036

(35

)

2,191

Interest expense

(252

)

(51

)

(434

)

(157

)

Income before income taxes and losses of unconsolidated affiliate

42,042

39,397

86,738

81,634

Income tax expense

8,227

8,206

17,877

16,788

Income before losses of unconsolidated affiliate

33,815

31,191

68,861

64,846

Equity in losses of unconsolidated affiliate

(331

)

(505

)

Net income

$

33,815

$

30,860

$

68,861

$

64,341

Net income per Class A Nonvoting Common Share:

Basic

$

0.65

$

0.59

$

1.33

$

1.24

Diluted

$

0.65

$

0.59

$

1.32

$

1.23

Net income per Class B Voting Common Share:

Basic

$

0.65

$

0.59

$

1.31

$

1.22

Diluted

$

0.65

$

0.59

$

1.30

$

1.21

Weighted average common shares outstanding:

Basic

51,800

52,018

51,887

52,020

Diluted

52,162

52,282

52,299

52,288



BRADY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

January 31, 2022

July 31, 2021

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

147,407

$

147,335

Accounts receivable, net of allowance for credit losses of $7,868 and $7,306 respectively

172,471

170,579

Inventories

167,456

136,107

Prepaid expenses and other current assets

12,681

11,083

Total current assets

500,015

465,104

Property, plant and equipment—net

126,551

121,741

Goodwill

601,681

614,137

Other intangible assets

83,608

92,334

Deferred income taxes

15,234

16,343

Operating lease assets

33,710

41,880

Other assets

26,264

26,217

Total

$

1,387,063

$

1,377,756

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

80,611

$

82,152

Accrued compensation and benefits

56,510

81,173

Taxes, other than income taxes

12,141

13,054

Accrued income taxes

4,783

3,915

Current operating lease liabilities

16,601

17,667

Other current liabilities

56,850

59,623

Total current liabilities

227,496

257,584

Long-term debt

83,000

38,000

Long-term operating lease liabilities

20,341

28,347

Other liabilities

89,658

90,797

Total liabilities

420,495

414,728

Stockholders’ equity:

Common stock:

Class A nonvoting common stock—Issued 51,261,487 shares, and outstanding 48,243,347 and 48,528,245 shares, respectively

513

513

Class B voting common stock—Issued and outstanding, 3,538,628 shares

35

35

Additional paid-in capital

341,889

339,125

Retained earnings

833,981

788,369

Treasury stock—3,018,140 and 2,733,242 shares, respectively, of Class A nonvoting common stock, at cost

(130,911

)

(109,061

)

Accumulated other comprehensive loss

(78,939

)

(55,953

)

Total stockholders’ equity

966,568

963,028

Total

$

1,387,063

$

1,377,756



BRADY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Dollars in thousands)

Six months ended January 31,

2022

2021

Operating activities:

Net income

$

68,861

$

64,341

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

16,996

11,421

Stock-based compensation expense

7,170

5,471

Deferred income taxes

(788

)

(3,866

)

Equity in losses of unconsolidated affiliate

505

Other

(812

)

121

Changes in operating assets and liabilities:

Accounts receivable

(7,216

)

(4,157

)

Inventories

(34,360

)

15,018

Prepaid expenses and other assets

(1,148

)

(2,436

)

Accounts payable and accrued liabilities

(25,357

)

11,990

Income taxes

982

481

Net cash provided by operating activities

24,328

98,889

Investing activities:

Purchases of property, plant and equipment

(16,440

)

(14,511

)

Other

59

(1,881

)

Net cash used in investing activities

(16,381

)

(16,392

)

Financing activities:

Payment of dividends

(23,249

)

(22,837

)

Proceeds from exercise of stock options

374

471

Payments for employee taxes withheld from stock-based awards

(5,025

)

(2,638

)

Purchase of treasury stock

(21,720

)

(3,593

)

Proceeds from borrowing on credit facilities

131,216

19,957

Repayment of borrowing on credit facilities

(86,216

)

(20,220

)

Other

115

32

Net cash used in financing activities

(4,505

)

(28,828

)

Effect of exchange rate changes on cash

(3,370

)

6,276

Net increase in cash and cash equivalents

72

59,945

Cash and cash equivalents, beginning of period

147,335

217,643

Cash and cash equivalents, end of period

$

147,407

$

277,588



BRADY CORPORATION AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited; Dollars in thousands)

Three months ended January 31,

Six months ended January 31,

2022

2021

2022

2021

NET SALES

ID Solutions

$

244,986

$

194,227

$

493,603

$

392,419

Workplace Safety

73,069

71,611

145,927

150,646

Total

$

318,055

$

265,838

$

639,530

$

543,065

SALES INFORMATION

ID Solutions

Organic

16.0

%

(6.9

)%

14.6

%

(7.6

)%

Acquisition

11.8

%

%

11.7

%

%

Currency

(1.7

)%

1.5

%

(0.5

)%

1.0

%

Total

26.1

%

(5.4

)%

25.8

%

(6.6

)%

Workplace Safety

Organic

5.2

%

(4.8

)%

(2.0

)%

0.4

%

Currency

(3.2

)%

5.2

%

(1.1

)%

4.8

%

Total

2.0

%

0.4

%

(3.1

)%

5.2

%

Total Company

Organic

13.1

%

(6.3

)%

10.0

%

(5.6

)%

Acquisition

8.6

%

%

8.5

%

%

Currency

(2.1

)%

2.4

%

(0.7

)%

2.0

%

Total

19.6

%

(3.9

)%

17.8

%

(3.6

)%

SEGMENT PROFIT

ID Solutions

$

44,129

$

39,000

$

92,945

$

79,279

Workplace Safety

4,515

3,463

6,808

11,451

Total

$

48,644

$

42,463

$

99,753

$

90,730

SEGMENT PROFIT AS A PERCENT OF NET SALES

ID Solutions

18.0

%

20.1

%

18.8

%

20.2

%

Workplace Safety

6.2

%

4.8

%

4.7

%

7.6

%

Total

15.3

%

16.0

%

15.6

%

16.7

%

Three months ended January 31,

Six months ended January 31,

2022

2021

2022

2021

Total segment profit

$

48,644

$

42,463

$

99,753

$

90,730

Unallocated amounts:

Administrative costs

(5,772

)

(5,051

)

(12,546

)

(11,130

)

Investment and other (expense) income

(578

)

2,036

(35

)

2,191

Interest expense

(252

)

(51

)

(434

)

(157

)

Income before income taxes and losses of unconsolidated affiliate

$

42,042

$

39,397

$

86,738

$

81,634



GAAP to NON-GAAP MEASURES

(Unaudited; Dollars in Thousands, Except Per Share Amounts)

In accordance with the U.S. Securities and Exchange Commission’s Regulation G, the following provides definitions of the non-GAAP measures used in the earnings release and the reconciliation to the most closely related GAAP measure.

Income Before Income Taxes Excluding Amortization:

Brady is presenting the non-GAAP measure, "Income Before Income Taxes Excluding Amortization." This is not a calculation based upon GAAP. The amounts included in this non-GAAP measure are derived from amounts included in the Consolidated Financial Statements and supporting footnote disclosures. We do not view these items to be part of our ongoing results. We believe this profit measure provides an important perspective of underlying business trends and results and provides a more comparable measure from year to year. The table below provides a reconciliation of the GAAP measure of Income before income taxes and losses of unconsolidated affiliate to the non-GAAP measure of Income Before Income Taxes Excluding Amortization:

Three months ended January 31,

Six months ended January 31,

2022

2021

2022

2021

Income before income taxes and losses of unconsolidated affiliate (GAAP measure)

$

42,042

$

39,397

$

86,738

$

81,634

Amortization expense

3,749

1,353

7,556

2,704

Income Before Income Taxes Excluding Amortization (non-GAAP measure)

$

45,791

$

40,750

$

94,294

$

84,338

Income Tax Expense Excluding Amortization:

Brady is presenting the non-GAAP measure, "Income Tax Expense Excluding Amortization." This is not a calculation based upon GAAP. The amounts included in this non-GAAP measure are derived from amounts included in the Consolidated Financial Statements and supporting footnote disclosures. We do not view these items to be part of our ongoing results. We believe this measure provides an important perspective of underlying business trends and results and provides a more comparable measure from year to year. The table below provides a reconciliation of the GAAP measure of Income tax expense to the non-GAAP measure of Income Tax Expense Excluding Amortization:

Three months ended January 31,

Six months ended January 31,

2022

2021

2022

2021

Income tax expense (GAAP measure)

$

8,227

$

8,206

$

17,877

$

16,788

Amortization expense

887

338

1,787

676

Income Tax Expense Excluding Amortization (non-GAAP measure)

$

9,114

$

8,544

$

19,664

$

17,464

Net Income Excluding Amortization:

Brady is presenting the non-GAAP measure, "Net Income Excluding Amortization." This is not a calculation based upon GAAP. The amounts included in this non-GAAP measure are derived from amounts included in the Consolidated Financial Statements and supporting footnote disclosures. We do not view these items to be part of our ongoing results. We believe this measure provides an important perspective of underlying business trends and results and provides a more comparable measure from year to year. The table below provides a reconciliation of the GAAP measure of Net income to the non-GAAP measure of Net Income Excluding Amortization:

Three months ended January 31,

Six months ended January 31,

2022

2021

2022

2021

Net income (GAAP measure)

$

33,815

$

30,860

$

68,861

$

64,341

Amortization expense

2,862

1,015

5,769

2,028

Net Income Excluding Amortization (non-GAAP measure)

$

36,677

$

31,875

$

74,630

$

66,369

Diluted EPS Excluding Amortization:

Brady is presenting the non-GAAP measure, "Diluted EPS Excluding Amortization." This is not a calculation based upon GAAP. The amounts included in this non-GAAP measure are derived from amounts included in the Consolidated Financial Statements. We do not view these items to be part of our ongoing results. We believe this measure provides an important perspective of underlying business trends and results and provides a more comparable measure from year to year. The table below provides a reconciliation of the GAAP measure of Net income per Class A Nonvoting Common Share to the non-GAAP measure of Diluted EPS Excluding Amortization:

Three months ended January 31,

Six months ended January 31,

2022

2021

2022

2021

Net income per Class A Nonvoting Common Share (GAAP measure)

$

0.65

$

0.59

$

1.32

$

1.23

Amortization expense

0.05

0.02

0.11

0.04

Diluted EPS Excluding Amortization (non-GAAP measure)

$

0.70

$

0.61

$

1.43

$

1.27


For More Information:
Investor contact: Ann Thornton 414-438-6887
Media contact: Kate Venne 414-358-5176